How to hire in Germany: a guide to recruitment in Germany
Germany is currently one of the most popular economies for businesses to expand into in Europe and possibly the world.
As the fourth largest economy in the world, Germany’s ever-evolving business environment offers valuable opportunities for U.S. companies looking to do business in Europe. Germany is a thriving hub of innovation and technology, making it an attractive location for companies looking to expand their workforce.
However, hiring employees in Germany requires a solid understanding of the country’s employment and labor laws and regulations. In this article, we’ll take a closer look at what you need to know about employment in Germany.
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Can I Hire in Germany?
If you are a foreign company looking to hire employees in Germany, there are several legal and administrative steps you will need to follow. First, you will need to register your company with the relevant authorities and obtain a tax identification number. You will also need to set up a payroll system to handle taxes and social security contributions.
Working Hours
Typical working hours in Germany are 8 hours per day and 40 hours per week. However, this can vary depending on the industry and collective bargaining agreements. Some companies and unions may have flexible work schedules or part-time options for employees. In addition, there are regulations in place to ensure that employees have adequate breaks and rest periods during the workday. It is also not uncommon for employees to work a six-day week, but this is not expected unless it is stated in their fixed-term contract.
Salary
Under German labor law, employers in Germany are required to pay their employees at least the German statutory minimum wage, which is currently €12 per hour. However, many industries have collective bargaining agreements that set wages higher than the gross minimum wage or salary set by German law.
The minimum monthly salary in various industries in Germany can vary widely depending on the specific job, level of experience, written employment contract, and location. Here are some examples of average gross annual salaries for common industries in Germany,
according to the Federal Statistical Office:
● Information technology: €58,752
● Engineering: €58,548
● Healthcare: €46,584
● Finance and insurance: €59,928
● Education: €39,540
It’s important to note that these are just averages and salaries can vary widely within each industry. In addition, salaries can be affected by factors such as education level, company size and location.
In addition to regular pay, employers are required to make social security contributions on behalf of their employees. These contributions cover health, pension and unemployment insurance.
Overtime Pay
In Germany, there are two types of overtime: statutory and contractual.
Statutory overtime is overtime that is required by law or by a collective bargaining agreement. For example, if an employee works more than eight hours per day or 48 hours per week, this is considered statutory overtime.
Contractual overtime, on the other hand, is overtime that is agreed upon in the employment contract between the employer and the employee. Contractual overtime may be compensated by overtime pay or by time off, depending on the employment contract.
Taxes
In Germany, both employers and employees have to pay taxes on their income. The tax system is progressive, meaning that higher earners pay a higher percentage of their income in taxes.
As an employer in Germany, there are several taxes you need to be aware of. Here are some of the most important:
- Wage/income tax: This is a tax that is deducted from your employees’ salaries and paid to the tax authorities on their behalf.
- Social Security Contributions: These are social contributions that both you as an employer and your employees pay to the German government, which are paid into the social security system. The contributions are used to fund various social programs, including health insurance, pensions, and unemployment benefits.
- Value Added Tax (VAT): If your business is registered for VAT, you must charge and collect VAT on the goods and services you provide. You must then pay the VAT you have collected to the tax authorities.
- Corporate Tax: This is a tax on the profits made by your company. You must file an annual return and pay the tax due.
- Solidarity tax: If your company’s income or corporation tax exceeds a certain threshold, you may be required to pay a solidarity surcharge, which is used to fund the costs of rebuilding the former East Germany.
- Trade tax: This is a tax levied by municipalities on businesses operating within their jurisdiction. The rate varies from municipality to municipality.
Removal Process
If an employer needs to terminate an employee’s contract, there are strict legal requirements that must be followed. German employees have significant protections against dismissal, and employers must have a valid reason for terminating an employment contract.
Termination:
Notice period: An employer must give notice of termination to an employee. The notice period depends on the employee’s length of service and is usually between 1 and 7 months.
Letter of termination: The employer must provide the employee with a written notice of termination that includes the reason for termination.
Exit interview: It’s common for the employer to conduct an exit interview with the employee to discuss the termination, any outstanding issues, and to maintain an employment relationship for any future referrals or recommendations.
Resignation:
Notice period: German employees who wish to resign must give notice to their employer. The length of the notice period depends on the employee’s length of service and is usually between 1 and 3 months.
Letter of resignation: German employees must give their employer written notice of their resignation.
Exit interview: It’s common for the employer to have an exit interview with the employee to discuss the resignation and any outstanding issues.
It’s important to note that there are certain legal requirements that must be followed in both termination and resignation processes, such as providing notice and complying with discrimination laws. It’s recommended that both employers and employees seek legal advice to ensure compliance with all relevant employment laws and regulations.
Authorized Leave
Due to the strict labor laws in Germany, employees are entitled to several types of authorized leave, including
Annual Leave: All employees are entitled to a minimum of 24 days of paid annual leave per year, which increases with length of service. Some collective bargaining agreements may provide for more than 24 days of annual leave.
Sick Leave: If an employee is ill or injured, he or she is entitled to sick leave. The length of sick leave and the amount of sick pay vary depending on the employee’s seniority and the collective bargaining agreement.
Maternity Leave: Female employees are entitled to maternity leave of up to 14 weeks, with full pay for the first 6 weeks and 67% of net pay for the remainder of the leave.
Parental Leave: Employees are entitled to up to 3 years of parental leave to care for their children. During this time, they are protected from dismissal and may be eligible for parental leave benefits.
Special leave: Employees may be eligible for special leave for a variety of reasons, including marriage, death of a family member, or to care for a sick family member. The length of the leave and whether it is paid or unpaid depends on the collective agreement or individual employment contract.
It’s important to note that there may be specific legal requirements and procedures that employees must follow to take authorized leave. Employers should consult with a legal professional or HR expert to ensure that they are complying with all relevant laws and regulations.
Cost of Hiring in Germany
Labor Costs
Labor costs in Germany are relatively high compared to other countries. According to Statista, the average gross salary in Germany is €43,722 per year, which is significantly higher than the average annual gross salary in many other European countries. In addition, German employees enjoy a range of benefits. These include paid vacation, sick leave, and parental leave as required by employment law, which can add to the total cost of employment.
Hiring and Recruitment Costs
When it comes to hiring employees and recruitment in Germany, there are several costs that companies in Germany may need to consider. These costs can include job postings, background checks, interviews, and pre-employment testing. Additionally, many international companies here in Germany choose to work with recruitment agencies, which can also add to the overall cost of hiring.
Training and Development Costs
Many companies in Germany offer training programs to their employees, ranging from short courses on specific skills to longer-term development programs. The cost of these programs can vary widely depending on their scope and duration, but companies that invest in training and development can see significant returns in terms of improved productivity and employee retention.
Employee Benefits and Perks
Many companies in Germany offer discounts and perks to employees, such as company health insurance plans, discounted gym memberships, discounted public transportation passes, and free or subsidized meals. These perks can help improve employee morale and can be a valuable retention tool.
Language Barrier
Language training is often an important part of training and development programs in Germany, especially for international companies or those looking to expand overseas. The cost of language training can vary widely depending on the level of proficiency required, but can be a worthwhile investment for companies looking to improve their global competitiveness.
Work Alongside a Global Expansion Expert to Effortlessly Move into the German Market
Many businesses have succeeded in their efforts to expand out of the U.S. and into Europe, many of them however, partnering with global recruiting and expansion experts like Launch Global. With regional experts by your side every step of the way, our team can help ensure you can expand beyond the border successfully; from taking on new talent and managing payroll to opening bank accounts, maintaining compliance with authorities, and understanding cultural norms and values.
To advance your expansion strategy, talk to one of our experts today.
Are you looking for a high quality partner to drive hiring in key geographies for your business?
Book a meeting with our global expansion expert for Germany to discuss your expansion strategy today